THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE

BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S.

GOVERNMENT POLICY

Voluntary - Public

Date: 7/16/2009

GAIN Report Number: CH9611

China - Peoples Republic of

Post: Guangzhou

U.S. DDGS dashes for China. Mostly to the feed mills of

Guangdong

Report Categories:

Grain and Feed

Approved By:

Joani Dong, Director

Prepared By:

Ken Chen

Report Highlights:

In 2008, U.S. DDGS exports to China climbed significantly to 6,007 tons valued over US$2.18 million, 78 percent was

bound for Guangdong province, the largest feed producer in China. As Chinese government limits domestic ethanol

production, U.S. DDGS has great market potential because of its high and consistent quality, free of mycotoxins, and

stable supply. The U.S. Grains Council offers assistance to U.S. suppliers to help register products with the China’s

Ministry of Agriculture (MOA) and promotes DDGS use among Chinese millers and livestock farmers.

General Information:

This report provides a snapshot of the recent trade situation as well as market outlook for U.S. DDGS

exports to South China based on ATO Guangzhou talks during June 2009 with key Distiller’s Dried

Grains with Solubles (DDGS) importers and industry tour members to feed mills that utilize the product.

It began as a trickle in 2007. Since then, U.S. DDGS exports to China have climbed dramatically to 6,007

tons valued over US$2.2 million in 2008.

China’s Imports of U.S. Distillers’ Grains

CY 2006 CY 2007 CY 2008

Quantity (metric tons) 0 101 6,007

Value (US$1,000) 0 15 2,183

Source: World Trade Atlas; China Customs data, Commodity Code: 2303.3000

The upward market trend continues in 2009. According to China Customs data, from January to April,

China bought 4,492 tons U.S. DDGS valued US$983,000. According to U.S. Grains Council (USGC), the

US exported 10,000 tons valued US$1.9 million to China in the first five months of 2009, already

exceeding 2008 trade volumes.

After purchasing the first ever U.S. DDGS shipment to China in 2007, Guangdong continues to lead with

imports. According to China Customs, 78 percent of U.S. DDGS enters Guangdong via the Huangpu

port. Qingdao ranks second accounting for 15 percent. The rest enter Beijing, Nanjing, Ningbo and

Shanghai ports.

Despite the leap in imports, China still accounts for a small percentage of U.S. DDGS exports which

reached 4.5 million tons in 2008. Mexico and Canada are the largest importers because their rail systems

are connected with U.S. ones. Shipments can be easily transported directly from U.S. ethanol plants to

Mexican and Canadian feed mills. Across the Pacific Ocean, the largest Asian buyers are Japan, Taiwan

and South Korea. Each bought over 180,000 tons in 2008.

U.S. Exports of Distillers Grains: CY 2006-2008 in metric tons

CY 2006 CY 2007 CY 2008

Mexico 367,386 708,216 1,188,766

Canada 123,022 318,864 771,791

Japan 45,248 83,586 198,014

Taiwan 92,824 134,404 189,451

South Korea 24,587 102,529 184,723

World Total 1,253,653 2,358,248 4,510,383

(Source: BICO; Department of Commerce, U.S. Census Bureau, Foreign Trade Statistics)

Given its large population, growing economy and limited arable land, China has voracious appetite for

protein feed ingredients. In 2008, it imported 37.4 million tons of soybeans to produce oil for human

consumption and soymeal for livestock feeds. In China, Guangdong is the largest feed producer. It

produces 15 million tons of feed per year and requires 600,000 tons DDGS as ingredients. U.S. DDGS has

25-32 percent protein and 10 percent fat. It is a good source of protein, energy and fat as well as

phosphorus and fiber for livestock and aquaculture.

So, what keeps China from buying more U.S. DDGS, and what should the U.S. industry do about it?

Competition from Chinese DDGS

In 2008, China produced over 150 million tons of corn. According to a veteran Chinese DDGS trader,

China can produce 4 million tons of corn based distillers grains yearly. However, due to inefficiency and

low profit, in 2008, China only produced 3 million tons. The key production area is in Northeast China,

comprised of Jilin province (highest quality), Heilongjiang and Liaoning. The largest ethanol plant is the

Jilin Fuel Alcohol Company which can annually process 1.3 million tons corn producing 400,000 tons

fuel and 320,000 high quality DDGS.

Chinese DDGS vs. American DDGS

Chinese DDGS American DDGS

Production: current and future outlook

4 million tons capacity, but actual production is 3 million; corn or grain based ethanol production is limited

by the Chinese government which needs to ensure food supply.

Now 31 million tons Should increase 7 million tons Total 38 million tons

Quality A few are good quality: 28 percent protein, 7 percent fat. A

large percentage is poor due to heat damage during processing: dark

color with smell of smoke.

Most are good quality: 25-32 percent protein, 10 percent fat; golden color

(highly digestible amino acid); desirable smell like freshly made bread.

Note: Some quality U.S. DDGS have dark color resulting from excessive solubles added to DDG.

Mycotoxins Very high for those grown in Henan, Hebei and Shandong, due to high moisture and rainfall during harvest seasons. It limits DDGS usage in swine feed. Mycotoxins may affect sow’s fertility and cause

piglet deaths.

Very low. Thanks to cold and dry weather in U.S. corn belt areas.

Supply Unstable, due to inefficient production and capped production. Supply will be short in summers when ethanol plants run out of

corn.

Stable

Mode of transportation to Guangdong

From the North: at ethanol plants all DDGS are bagged (50 kg or 110 pounds each), then loaded into

containers at plants. Ethanol plants to Dalian or

other northern ports: in containers by rail or truck

Northern ports to Guangzhou ports: in containers by vessel

Guangzhou ports to

mills: in containers by truck or barge (bagged DDGS may be unloaded at ports or at mills)

From the central and east

(Henan, Hebei and Shandong): all DDGS are bagged and transported by truck

All U.S. DDGS are exported to China by containers

in bulk so far.

Some containers are loaded in the Midwest such as Chicago and

Kansas City Some DDGS are sent by train in

bulk to western ports, then loaded into the containers

U.S. ports to Guangzhou: by vessel

Guangzhou ports to mills: by

truck (unloaded and bagged at port; or unloaded from containers at mills)

Future alternative: U.S. ports to Chinese ports : by large

bulk vessels such as Panamax bulk ships

Transportation

time From the North: 20 to 30

days From the Central and East: 2-3 days

40 – 60 days

Costs per ton

(US$): Ex Workshop in the North:

$ 235 Ex Workshop: $ 170 U.S. inland transport: 30

1US$=RMB6.82 (Note: These are individual transactions in May 2009. They may not reflect actual

market prices on average)

Transportation:

51 Total : $286 (Guangdong avoids buying DDGS from the Central and East due to high mycotoxins levels.)

Ocean freight: 50 Tariff (5% of CIF): 13 Misc.(Chinese port fees,

inspection fee & transport to mills): 30 Total: $ 293 (by container; if by bulk vessel, prices could be reduced) (If DDGS is unloaded and bagged at Guangzhou ports, it costs US$10.26 per ton.)

It is also noteworthy that in 2008 China exported 203,826 tons DDGS valued US$44.7 million, of which

88 percent (178,511 tons DDGS valued US$37.9 million) went to South Korea which approximates

Northeast China. The rest are mostly shipped to Japan, Taiwan and Southeast Asia.

China’s Exports of Distillers Grains: CY 2006-2008 in metric tons

CY 2006 CY 2007 CY 2008

South

Korea

19,416 59,234 178,511

Japan

19,181 13,076 15,757

Taiwan

143 684 3,980

World

Total

39,838 79,108 203,826

(Source: World Trade Atlas; China Customs)

China’s exports to South Korea can even compete with the US, but U.S. prices have become more

competitive.

South Korea’s Imports of Distillers Grains: CY 2006-2008 in metric tons

CY 2006 CY 2007 CY 2008

China 19,416 59,234 178,511

United States 24,587 102,529 184,723

(China’s Data Source: World Trade Atlas; China Customs; U.S. Data Source: BICO; Department of

Commerce, U.S. Census Bureau, Foreign Trade Statistics)

To conclude, in South China, U.S. DDGS, in general, is more competitive than normal Chinese

counterparts in terms of quality, appearance, nutritional value and mycotoxin levels. Given Chinese

government limits on domestic ethanol production and demand from other Chinese regions and South

Korea, U.S. DDGS can outpace Chinese ones (even high quality competitors) in Guangdong with

consistent and stable supply.

Shortage of containers

The economic slowdown has impacted U.S. consumer demand for Chinese imported industrial products;

as a result, fewer containers are available to ship U.S. agricultural products back to China.

According to two U.S. exporters, they can only quote for shipments three months ahead of time because

of uncertain container supply and ocean freight prices.

The ultimate solution is to ship DDGS to China by bulk vessels, as for soybeans and wheat to slash

shipping costs and further elevate U.S. DDGS competiveness.

MOA feed registration

According to USGC, under Chinese law, regulated and administered by the Ministry of Agriculture

(MOA), processed feed grains products/ingredients like DDGS must have MOA registration approval

before they can be legally imported. Thus, U.S. DDGS producers who want to export to China must

follow up with an official application, product review, approval and registration process.

After the first shipment to China in 2007, U.S. DDGS has been traded in small and containerized

shipments without proper MOA feed registration. However, neither U.S. sellers nor Chinese buyers are

likely to assume much greater risk associated with possible rejection of unregistered bulk shipments.

This registration requirement presents a significant challenge for future and larger DDGS trade with

China.

In response, USGC initiated a service, as of June 1, 2009, to assist member U.S. DDGS suppliers who

want to obtain MOA registration. Interested members may contact Mike Callahan, USGC senior director

of international operations for Asia, at mcallahan@grains.org, or Kim Karst, USGC manager of

international operations for Asia, at kkarst@grains.org.

Import procedures based on Guangdong trader information

U.S. exporter: Submit the following to MOA for GMO safety certificate

1. GMO Safety Instructions 2. MOA GMO Safety

Administration registration form

Chinese importer: Submit the following to MOA for GMO labeling

1. Labeling instructions 2. GMO labeling application form

Note: Each certificate/label application costs 3,000 yuan or US$440 and 25 working days. It is valid for 6 months and only used for a shipment.

Chinese importer: 1. Request local CIQ to inspect and approve storage and processing facilities. 2. Apply through provincial CIQ for import permits issued by AQSIQ. Note: It takes about one month. The import permit is valid for six months and be used for multiple shipments from a supplier.

After purchase contracts are signed and shipments initiated, U.S. exporters provide Chinese importers the following importation documents: Bill of Lading; Packing List; Commercial Invoice; Weight Certificate; Certificate of Analysis; Phytosanitary Certificate; Certificate of Origin and Insurance Policy.

Seven to ten days before shipments arrive at Chinese ports, importers should apply with local Customs for the exemption of value added tax (VAT, 13%). After arrival, it generally takes three days for Customs clearance and five days for document submission to CIQ which needs 15 days to complete testing on GMO and melamine. Before CIQ testing results are ready, DDGS containers may be released and stored in importers/millers’ facilities approved by CIQ. 14 days free demurrage period is needed; a demurrage day costs RMB200 or US$29.

Outlook and promotion

Once MOA registration has been successful, U.S. DDGS market potential shows great promise,

particularly in Guangdong and other South China regions. The most important factor impacting sales

would be price subject to:

1. U.S. domestic demand: Given U.S. livestock farmers are the largest consumers, they have the

most influence on DDGS market prices. For instance, recent DDGS prices are high mainly

because U.S. swine farmers use more DDGS in rations to substitute soymeal.

2. Demand from Mexico and Canada: as above mentioned, they are main buyers of U.S. DDGS.

3. Soybean meal and other feed ingredients prices: Because DDGS provides protein, energy and

fat, its price is influenced by soybean meal (mostly from U.S. beans, crushed in coastal Chinese

cities), corn (mostly from Northeast China), cotton seed meal (Hunan, Hubei and some from

Xinjiang), rapeseed meal (Hunan, Hubei and Canada) and yellow grease (from all over China).

4. Ocean freight: petroleum prices and the recovery of international trade will impact ocean

freights.

5. Chinese DDGS prices: According to a trader, millers usually are willing to pay a premium of

RMB50 or US$7.33 for U.S. DDGS over same quality Chinese ones.

Millers are recommended to build a slope for containers trucks to ride on. It helps DDGS with unloading. Once all testing results are cleared, CIQ notify millers that may proceed to use imported DDGS.

Another factor would be the Chinese government’s attitude towards U.S. DDGS imports. Media reports

on waves of criticism about U.S. imported soybeans dominating the China market. As a result, the

government has become cautious and sensitive about grain imports such as corn and DDGS. If repeated

attempts to obtain MOA registration for U.S. DDGS prove futile, that could point to Chinese government

intent to curb imports.

Given DDGS is a relatively new feed ingredient, promotion activities are key to educate

millers/livestock farmers as well as boost sales.

DDGS use in feed rations

Swine Poultry Aquaculture Ruminant

Current usage % 1.5 5 5 10

USGC recommended % 10-20 10-15 10-30 20-40

The above chart indicates there is big room for additional DDGS usage in feed. In South China,

promotion focus should be on swine and poultry (particularly yellow feather broiler chicken) which

consume most manufactured feed. USGC has obtained USDA funds to establish a swine raising technical

extension center in South China.

Contact Information:

FAS/Office of Agricultural Affairs (OAA), Beijing

U.S. Embassy Beijing

#55 An Jia Lou Road, Beijing 100600

Tel: (86 10) 8531-3600

Fax: (86 10) 8531-3636

E-mail: agbeijing@fas.usda.gov

U.S. Agricultural Trade Office (ATO), Guangzhou

14/F, Office Tower, China Hotel

Guangzhou, China

Tel: (+86-20) 8667-7553

Fax: (+86-20) 8666-0703

Email: atoguangzhou@fas.usda.gov

Web: www.usdachina.org

Agricultural Trade Office (ATO), Beijing

U.S. Embassy Beijing

#55 An Jia Lou Road, Beijing 100600

Tel: (86 10) 8531-3950

Fax: (86 10) 8531-3050

E-mail: atobeijing@fas.usda.gov

Agricultural Trade Office (ATO), Shanghai

Shanghai Center, Suite 331

1376 Nanjing West Road

Shanghai 200040

Tel: (86 21) 6279-8622

Fax: (86 21) 6279-8336

E-mail: atoshanghai@fas.usda.gov

Agricultural Trade Office (ATO), Chengdu

Suite 1222, 19 4th

Section Renminnan Lu

Chengdu, Sichuan, PRC 610041

Tel: (86 28) 8526-8668

Fax: (86 28) 8526-8118

Email: atochengdu@fas.usda.gov

Agricultural Trade Office (ATO), Shenyang

Tel: (86 24) 2322-1198

Fax: (86 24) 2322-1733

E-mail: James.Butterworth@fas.usda.gov

U.S. Grains Council, Beijing Office

Unit 10C, 10th Floor, China World Tower 1, No. 1 Jianguomenwai Ave.

Beijing 100004 China

Tel: (86 10) 6505-1314; (86 10) 6505-2320

Fax: (86 10) 6505-0236

Email: grainsbj@grains.org.cn

Web: www.grains.org.cn